An exceptionally low mortgage rate can be a blessing — but it can also be a curse. A low interest rate is all well and good while you live in the house your mortgage is attached to, but if you decide you want to move, it becomes hard to make the case for it financially.
Take, for instance, the situation many pandemic-era homebuyers are now stuck in: "With 30-year mortgage rates currently averaging about 7%, homeowners who secured rates closer to 3% during the pandemic are hesitant to sell their homes," said CBS MoneyWatch. But what if you have to make a move, or really want to? Here are some steps you can take to navigate the dilemma of trading in your rock-bottom mortgage rate for one that is higher.
Consider whether the move really makes sense
If your mortgage rate is going to increase substantially, it is important that the logic of your intended move checks out in other ways, both financial and personal. Examples can include changes in family circumstances, such as a divorce or a need for more space, as well as access to career opportunities or a desire to downsize, said CBS MoneyWatch.
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To assess whether a move is worthwhile, it helps to zoom out to the bigger picture over the long term. For instance, a move to downsize could cut down on costs overall, while switching residences for your career could lead to a raise or more opportunities for growth. Meanwhile, if it comes to family-driven changes like getting more space or moving closer to better schools, "these quality-of-life improvements can make the switch to a higher rate worthwhile," said CBS MoneyWatch.
See if it is possible to keep your mortgage rate
It might be a long shot, but it is technically possible to keep your rate through what is known as 'mortgage porting.' With this option, "you use the proceeds from selling your current home to pay off your remaining loan balance," and "then the lender will essentially re-lend you the money for your new home at your existing rate," said Investopedia.
The downside? "If you're a U.S. homeowner, your lender most likely doesn't offer the option of porting your mortgage," said Investopedia. Still, it does not hurt to ask.
Explore ways to get a better rate on your next home loan
If you have decided the move makes sense and mortgage porting is a no-go, it is important to explore other ways to at least get a more competitive rate on your new mortgage, even if it is not as low as your existing one.
Some possibilities include:
Making a larger down payment, which "will often get you a somewhat lower interest rate," said Investopedia. The same goes for a loan with a shorter term.
Seeking an assumable mortgage, which lets you "take over the loan of someone with a low-interest mortgage when you buy their house," said Yahoo Finance.
Taking advantage of rate buydowns, which are "promotional loan programs in which your rate is lowered for a year or two and then reverts to the regular loan rate," said Yahoo Finance.
Considering an adjustable-rate mortgage (ARM), which "sometimes have lower interest rates than fixed-rate ones, especially if they come with an introductory teaser rate for a period of time," said Investopedia.
